Barclays' decision to ignore the pleas of Olympic gold medallist Mo Farah and
cease trading with 100 money transfer firms has taken a fresh twist after
one of them took legal action against the bank.

The UK lender had set a deadline of Monday to stop doing business with “remittance” companies through which people transfer money to their families in developing countries – including Somalia, where athlete Mr Farah was born.

Barclays’ move had followed a crackdown by regulators, particularly in the US, on any dealings between a bank and intermediaries that exposed it to risks of money laundering or funding terrorism.

Such risks were brought home late last year by the $1.9bn (£1.2bn) penalty levied on HSBC for becoming a conduit to money-laundering by Mexican drug cartels and a $327m settlement paid by Standard Chartered to US authorities after for allegedly violating sanctions with Iran.

But Barclays’ move triggered warnings from charities and campaigners that it would provoke a catastrophe in Somalia, which has no functioning bank network.

The upshot is that nationals abroad are reliant on remittance companies to send money back to their families for food and medicines. Mr Farah was one of 90,000 petitioners who called on Barclays to continue dealing with the four large UK money transfer firms servicing Somalia.

Last week he said: “Unfortunately we are now just one week away from a new humanitarian catastrophe in the country. Remittances have played a crucial role for my family and the Mo Farah Foundation and their sudden cessation will have serious and avoidable consequences, bringing increased hardship, insecurity and instability to the Somali people.”

Barclays, which had about 25pc of the Somali money transfer market, pushed ahead with its decision.

But on Monday one of the four firms, Dahabshiil, brought an injunction against the UK bank. That has forced a two-week reprieve, with the case due to be heard on October 15.

A Barclays spokesman said: “We believe this case is baseless and the hearing has been adjourned to a date when the court can consider the issues fully. Barclays has given Dahabshiil a short extension during which time we hope it can finalise alternative banking services.

“Dahabshiil has already opened accounts with a new bank that allows them to make corporate and aid agency remittances to Somalia, but is still in the process of finalising arrangements for individual remittances.”

Ben Philips, Oxfam’s campaigns director, said Barclays’ extension offered only a “brief respite” and called on the Treasury to push “for a robust solution that ensures ordinary Somalis are not penalised by regulations intended to crack down on illicit financial flows”.

Barclays took its decision to cut ties with the remittance firms long before this month’s terrorist attacks on the Nairobi shopping mall – alleged to be masterminded by the Somalia-based al Shabaab group.

It is also ceasing trading with around 150 other money services businesses, including foreign exchange brokers and third-party cheque cashiers.

A spokeman for Dahabshiil said: “We have one potential alternative provider, but they cannot process cash remittances which is the vast bulk of our business. If it were as simple as Barclays suggest, then we wouldn’t be where we are now and Barclays are well aware of that. However, this matter is now before the courts. We therefore will focus on presenting our case to the judge. We believe we have a strong case.

"It is our view that Barclays is abusing its dominant position by proposing to terminate an existing relationship without objective justification and by treating Dahabshiil differently to those they continue to bank.”

Other banks have also placed the sector under review, with HSBC already withdrawing. A spokesman said: "As a result of a strategic review of the Money Services Business sector, HSBC is withdrawing from offering banking services to this segment. The segment includes companies offering services such as money/currency exchange, money transfers and cheque cashing.“

A Lloyds Banking Group spokesman said: “The Money Service Business sector carries some risks given the nature of its activities, and is not one in which Lloyds is heavily involved. We review each request for banking facilities against our internal procedures and consider on a case by case basis. Through the BBA, we are working with the money transmission industry and the Government to help reduce the risk of providing banking services to remittance companies.”

Royal Bank of Scotland said it was "reviewing its polices but has yet to withdraw" from the market.